United Kingdom
Renewed optimism to fuel surge of M&A activity in 2010 - Brent Goldman
Expectations of increased availability of bank credit bolsters growth targets
Renewed optimism will prompt a surge of M&A activity over the next 12 months, with 80 per cent of mid market corporates planning acquisitions in 2010 and setting ambitious targets to acquire an average of 2.5 companies according to our recent M&A survey.
There is evidently huge appetite for acquisitions to meet ambitious growth targets, but there are still some challenges which will need to be overcome. While there is clearly optimism that the credit tap is going to be turned back on, there are still concerns around raising finance and an ongoing expectation gap on price between buyers and sellers. Management time constraints might pull the plug on expansion plans, particularly for smaller, resource-constrained companies.
Average growth targets for 2010 are currently as high as 25 per cent among mid-market companies, with more than one in 10 (11 per cent) setting their sights even higher. Most deals are likely to be under £20 million, but nearly one in five planned acquisitions are expected to exceed £100 million. 80 per cent of companies asked said that they would consider distressed deals.
While the majority of firms expect to fund these acquisitions from existing cash reserves (57 per cent) or existing bank facilities (51 per cent); nearly half of companies expect to secure new bank debt (41 per cent) or secure additional support from shareholders (40 per cent); demonstrating an expectation that funding will become more available in 2010.
This illustrates a renewed optimism, as one in five companies admit to having faced difficulty in securing financing over the last 24 months, with 69 per cent having to rely on existing cash reserves because of banks reluctance to lend.
Most firms are looking for similar businesses to acquire in 2010 (56 per cent), however, many companies are considering entering new sectors or markets. This shows that companies are planning to diversify more than in the last few years when 72 per cent of acquisitions were made to increase market share in an existing market.
The findings of this research are positive news for the economy. However, this optimism could be stifled by further barriers include regulatory issues and possible new legislative change. A new Government has to realise that this optimism is only as strong as support given by favourable regulation and the availability of credit.
Please click here to view the survey